IRS Reports $458 Billion a Year in Unpaid Taxes

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An estimated $458 billion a year in federal taxes went unpaid in 2008 through 2010, the Internal Revenue Service reported recently.

That figure, called the “tax gap,” was up slightly from $450 billion in 2006, although the IRS attributed much of the difference to improved methodology rather than significant changes in taxpayers’ behavior.

The IRS also noted that the Great Recession had reduced overall federal revenues from 2008 through 2010. The tax gap may well have grown since then as the American economy recovered.

IRS enforcement efforts and late payments for 2008-2010 brought in $52 billion in revenue later, reducing the net tax gap for that period to $406 billion per year.

The size of that figure underscores some of the benefits that comprehensive tax reform could bring. Reform could simplify the calculation of taxes owed, encouraging more people to file tax returns in a system that — as the IRS notes — relies largely on voluntary compliance.

In addition, reform and simplification could make the tax laws easier to enforce and improve public confidence in the system by eliminating special provisions that favor some taxpayers, businesses and industries over others.

All of that could help bring in additional government revenue without raising tax rates, and perhaps even lowering them. This additional money could be used to reduce projected federal deficits.

External links:
Tax Gap Estimates for 2008-2010 (IRS)
Unpaid Annual Taxes Rise to $458 Billion, IRS Reports (N.Y. Times)
Reforms Could Simplify Tax Code, Boost Economy (Concord)

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